Question

In the month of March the Digby Corporation received and delivered orders of 164,000 units at a price of $15.00 for revenue of $2.460mil for their product Dune. Digby uses the accrual method of accounting and offers 30 day credit terms. By the end of May Digby had collected payments of $2.460mil for the March deliveries. How much of the collected $2.460mil should Digby show on the March 31st income statement and how much on the May 31st income statement?

$0 in March; $2.460mil in May $0.812mil in March; $1.648mil in May $1.230mil in March; ?1.2MJrnil in May $2.460mil in March; $0 in May

Answer 1

Correct answer is (d) i.e. $2460mil in March and $0 in may

There are two accounting system one is Cash system and Second is Accrual System

Accrual System is the system in which Revenues accounted in the period in which they are earned and Expenses in the period in which they are incurred.

For example : In the accrual system Sellers record a sale as revenue earned even if the customer has not yet paid

In our question Digby corporation delivered goods in march and it follows the accrual system of accounting. hence it will record sale as income in the month of march even if client will pay after a period of 30 days